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Back to Basics - Part 2

Back to Basics - Part 2

| August 09, 2023

Welcome back! This week we will talk about market timing, what it is, why we think we can do it successfully, and why that is just plain false! So put away your crystal balls and get ready to see the truth. Spoiler alert: time in the market earns us more than timing the market. 

What is Market Timing?

Market timing is making buying or selling decisions on financial assets by attempting to predict future market price movements. What this boils down to in English is that when the markets are turbulent, we tend to want to take our money and run, waiting on the sidelines for things to start heading upward again. Sometimes our predictions are based on a market outlook or economic conditions. But more often than not, it's a tip from your uncle or some guy at a cocktail party that sounded like he knew what he was talking about. This is not how to make investment decisions, and I’m sure you already know that!

The Madness of Market Timing

In reality, no one can predict the future. Common wisdom and hard evidence tell us that attempting to time the market does not actually work. As hard as many investors have tried, earning immense profit by attempting to buy and sell around future market pricing is a concept that can be described as elusive, at best. One of the greatest costs of market timing is being out when the market “unexpectedly” rises and being in during an “unexpected” drop. Attempting to “beat the market” tends to be a futile endeavor. History shows us that an investor can make significantly more gains by focusing on time in the market rather than focusing on timing the market.

Source: Putnam Investments

Focus on Time in the Market

While market timing can sometimes appear to be a beneficial strategy, disappointment in the results is inevitable. It is comparable to sports commentators attempting to predict which team will be the big winners at the beginning of a season, only to be proved incorrect when their chosen teams ultimately lose in the end. Don’t subject your money to a high-risk strategy based on emotion, time in the market is the best way to reap the market's rewards over the long term.

Buying and holding do not equate to ignoring your investments. Regularly evaluating your portfolio with your financial team at Grover Financial Services is always necessary because the market changes over time. A regular investment portfolio check-up, say annually, will ensure that you are making the right decisions and that your money is exactly where it should be to reach your financial goals.

Time, not timing, is your friend. The most effective approach to reaching your financial goals is to seek information, ask questions, and make decisions with us at your side. Above all else, your short-term and long-term decisions should reflect your individual financial needs and goals. You have to decide what level of risk you are comfortable and capable of living with now and in the future. Reviewing your portfolio regularly with your financial team will help you determine what investments will be the right ones for you. Join me next week when we will talk about the difference between risk and volatility. 

Until next time...

One last thought, I believe an educated investor is an empowered investor. If you like what you’ve read and think your friends and family can benefit as well, please share.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested in directly. 

All investing involves risk, including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Dollar-cost averaging involves continuous investment in securities regardless of fluctuation in the price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.